Real Estate

How is Omicron Impacting European Commercial Real Estate?

February 2022 – 9 min read

Omicron’s rapid spread slowed growth early this year, but the direction of travel could likely improve again from the second quarter. The Barings Real Estate team discusses what this means for the asset class.

Economy
  • Omicron’s rapid spread slowed growth early this year, but the direction of travel could likely improve again from the second quarter.
  • The current stubborn bout of inflation is expected to linger into 2022, but its ‘cost-push’ nature, absence of solid wage growth and passing base effects, suggest it should still eventually pass.
  • The ECB is facing pressure to follow other central banks, but has ruled out raising interest rates this year.
Property Markets
  • Real estate capital market activity has recovered well, with 2021 European investment reaching a record high.
  • REIT share prices suggest industrial assets will remain popular through 2022, putting sector capital values under further upward pressure.
  • There will be no shortage of capital to deploy in 2022 according to INREV’s latest Investor Intentions Survey, but sourcing product in sought after sectors could prove challenging!
  • Until there is a significant pick-up in development pace, Grade A landlords will hold the balance of negotiating power.
  • Retail market conditions improved last year, but structural challenges driven by changing shopping patterns remain. 
  • Industrial take-up for 2021 is forecast to hit a record high, with sector rental growth prospects exceedingly bright.
  • Positive (but slower) house price growth is forecast for 2022, with interest rate hikes minimal in Europe. 

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Paul Stewart

Head of U.S. & European Real Estate Research & Strategy

Benjamin Thatcher

Associate Director

Joanne Warren

Director, Real Estate Research

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